The GiveWell Blog

Big government vs. the private sector

Did I get your attention, political junkies?

So, a lot of people subscribe to the interesting theory that good works are best left to the private sector, not the public sector.

This idea makes sense in a lot of ways. We can all think of examples of services where private companies are 100x more accountable – and therefore efficient and effective – than the government. There’s only one tiny chink in this theory’s armor: in the year 2007, the government is 256 times as good at grantmaking as private foundations.

Beyond Philanthropy sums up why this is, while trying to make the opposite argument: “private consultants on foreign development projects cost government agencies $300,000 per year per head in salary and overhead costs. Private philanthropy annual consulting costs per head were only around $100,000 – less by nearly two thirds.” That’s it in a nutshell: the government has higher overhead. That is to say, the government plans, systematically evaluates, and publicly shares its decisions. Foundations don’t.

Check out the studies that have been done of the TRIO programs, the CCDP, and the work of USAID. They are rigorous, intelligent, and honest. They take a hard look at what’s working and what isn’t. They acknowledge their own limitations. They don’t try to throw sand in your eyes like some of the unbelievable puff pieces churned out by the private sector. And more importantly, they’re online. Want to know why the government is funding a Talent Search program? It’ll tell you. Want to know why Gates gave money to the WHO? Too bad. The pattern is thuddingly consistent … whenever Elie and I see a government agency in a charity’s application, our eyes light up because we know we’re about to get real information.

I’m not trying to be a Red here. In fact, I think the private sector could and should be far better than the government at grantmaking. But I know that it isn’t. Why not? Because in today’s language, “government” equals “controversy” and “charity” equals “Smile, give, shut up, and don’t even think about being critical and negative.” So, in an area (doing good) where results are far removed from “customers,” customers demand results from the government – and let foundations and charities get away with murder or whatever it is they’re doing.

FedEx is more accountable than the post office – start missing deliveries and it’ll go out of business, fast – but foundations and charities, today, are far less accountable than the government. Because we let them be. Because we don’t demand more. It doesn’t have to be that way. But don’t talk to me about the superiority of private giving … until and unless we do a better job with it.


  • Tim Ogden on October 5, 2007 at 4:53 pm said:

    For full disclosure, Holden and I had a bit of this conversation via email before moving it here.

    Some thoughts:
    1) Holden presumes that the government hires better consultants to do more work than private philanthropy does. In my experience, its the exact same consultants being hired by both groups. The government just pays more for the same work. Therefore we were not making the lower overhead argument, but the “government routinely overpays” argument, also known as the “$527 hammer” argument.

    2) Of course, anyone who has done contract work for the government knows that the reason they pay more is that they have to — working for the government requires a huge amount of pointless record keeping and paper shuffling. Doing more work is not necessarily getting more done.

    3) My experience is all in international aid work, so I can’t speak to domestic issues. In the international aid area, the government is mostly known for doing lots of studies and then not doing anything about the results. Essentially they “learn” from their mistakes by doing thorough evaluations, then repeat the same mistakes over and over. There’s plenty of evidence of this in books as varied as “Inside Foreign Aid” published in the 1970’s to “The White Man’s Burden” published last year.

    4) None of this is to claim that private philanthropy is necessarily any better. I’m on record as saying “Private philanthropy could go toe to toe with foreign aid in a heavyweight waste and ineffectiveness bout”. As was said in the post, the comparison is certainly worth considering.

    5) The main points of the post were a) that it’s not clear whether one is better than the other if you look at the whole pie (e.g. all of private philanthropy vs. all of federal spending) and b) Americans have historically trusted private individuals more than the government.

  • Holden on October 5, 2007 at 5:05 pm said:

    I don’t know enough to confirm/refute the $527 hammer point, but it sounds right – that is the kind of well-known pitfall that comes with govt.

    My argument that the govt tracks itself isn’t really based on expenses, though, it’s based on the reports themselves. The avg quality of these reports is just so much higher than those of private sector reports. So it isn’t just a matter of overpaying.

    That leaves the question of whether the govt is producing these nice reports and ignoring them. I don’t know much about USAID, but I do think the CCDP report I linked to is an excellent example of a project that made sense in theory and was rigorously evaluated and then dropped – if that same project had been done by a private charity with good fundraisers, nothing would have stopped it from lasting 100 years and becoming one of the largest and most reputable charities in the nation. Maybe even being featured as a high-impact nonprofit someday.

    Even if the reports are ignored, at least the govt is putting itself in position to be examined and criticized if and when people start to care. More than foundations can say.

    What it comes down to for me is that the govt is 100x less accountable than a private company subject to competition on results … and 100x more accountable than any private foundation. If Americans trust private foundations more, I think they’re wrong (though right to trust the private sector more in some other areas).

    I advocate more govt aid, consequences for private philanthropy be damned, until/unless private philanthropy demonstrates some reason to believe it is reliably better than govt.

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